Due diligence in investment migration: how does investor screening work?

Why do countries take due diligence so seriously?

Because it identifies individuals who may threaten national security and financial stability. Through detailed investor screening, countries aim to prevent individuals involved in money laundering, corruption, the financing of illegal activities, or the circumvention of international sanctions from entering their territories.

Recently, many countries have strengthened their oversight of investment migration programs. For instance, in 2022, the European Commission concluded that Vanuatu’s CBI program posed a threat to EU security and could lead to increased corruption and money laundering. Consequently, Vanuatu was removed from the list of countries whose citizens are entitled to visa-free entry to the Schengen Area at the end of 2024. To rectify the situation, Vanuatu’s authorities have implemented reforms aimed at strengthening investor due diligence. However, the date for the restoration of visa-free entry is still uncertain.

Another example: Concerned about rising fraud and threats to national security, the U.S. Congress amended the EB-5 investment program. The 2022 reform strengthened due diligence procedures and oversight of regional centers, as well as the legal origin of invested capital.

Who is involved in investor screening?

The investor due diligence process involves several stages, each requiring the involvement of specific specialists.

Typically, participation in the CBI program is only possible through a licensed agent. These agents conduct initial background checks, assess investor files, and ensure that complete sets of documents are submitted to government agencies.

The government agencies responsible for citizenship by investment or residency review the investor’s file and verify their compliance with legal requirements. Authorities conduct a full assessment, including checks of national and international databases. They analyze visa and immigration history, send inquiries to relevant government agencies, and review tax status. Authorities also check criminal records.

Independent due diligence companies may be engaged to conduct an in-depth analysis. For example, in São Tomé and Príncipe, government agencies transfer the dossier to independent organizations after a preliminary assessment. These organizations conduct a thorough review of the investor’s identity, business reputation, and any negative media coverage. At this stage, they also identify any potential ties to corruption and any presence on sanctions lists.

Financial Intelligence Units (FIUs) conduct additional due diligence on applicants who wish to invest in the country’s economy. Financial monitoring verifies that applicants are not involved in money laundering or terrorist financing. Banks analyze the source of funds and ensure that the income is consistent with the investor’s activities. They may request documents on dividend receipts, inheritances, and business sales.

What exactly is verified during due diligence?

Due diligence is a comprehensive identity check that reveals secrets about one’s biography, the source of one’s funds, and one’s reputation in business circles. When obtaining a residence permit or citizenship through investment, the investor and their family members are both subject to verification because they are often involved in the process of becoming legal residents of the country.

Identity verification

At this stage, applicants undergo a detailed review of their personal information. This includes their residential address, passport number, social security number, and tax identification number. Citizenship is verified to exclude citizens of countries with closed investment programs. If an investment residence permit is being applied for, the applicant’s visa may be checked.

They may also check if the applicant has been denied visas to other countries. For example, St. Kitts and Nevis has a rule that deems an investor unreliable if they have previously been refused visas to countries that St. Kitts and Nevis citizens can travel to without a visa.

Verification of the origin of capital

One of the most important stages of due diligence is a financial analysis that verifies the legal origin of your capital. This involves reviewing bank statements and documents confirming your legal status as a business owner. Tax reports showing the origin of funds and payment of taxes are also considered. Failure to pay taxes or having outstanding debts to government agencies will be considered a sign of instability.

Business reputation check

To qualify for the investment program, the applicant’s business reputation is reviewed. The following aspects are analyzed:

• Work experience, history of collaboration or management with a previous company, involvement in bankruptcy proceedings;
• Assessment of partnership history, fulfillment of obligations, and presence of completed and terminated contracts;
• Activities of the company owned by the investor;
• The source of the funds used to establish the business;
• Subsidiaries, shareholders, directors, and ultimate beneficiaries;
• The role of trusts, foundations, and offshore companies in the investor’s corporation;
• A comparison of the size of the capital and the volume of assets involved in the business.

Litigation check

Participation in litigation is an important factor in assessing an investor’s reliability. Specialists analyze data from open court registries, arbitration cases, and bankruptcy databases. They also review the nature and outcomes of disputes. They pay particular attention to cases involving financial obligations, corporate conflicts, tax disputes, and potential fraud.

Denial of a residence permit or citizenship application at this stage may be due to outstanding or persistent lawsuits from creditors, or participation in bankruptcy proceedings with evidence of deliberate asset stripping, for example. A court decision on fraud or tax evasion may also result in denial. Even if the case is concluded without a conviction, it may raise doubts about the investor’s credibility with regulatory authorities.

Public reputation check

Due diligence involves examining a person’s public reputation based on information from open sources. This may include print and online publications, as well as mentions in business and industry publications. At this stage, negative information may be uncovered about the applicant, such as involvement in financial fraud or public conflicts. Mentioning your name in such materials may trigger additional due diligence.

Family check

Information about the investor’s family members is checked as thoroughly as that of the main applicant. This is necessary to eliminate all possible risks associated with residence permit and citizenship programs. The investor’s spouse, children, and parents are checked against sanctions lists and for political ties. Criminal records and connections are also examined. If a significant amount of funds or a high regular income is discovered, the activities of family members are assessed.

Risks may arise if a family member has previously been sanctioned, has been associated with companies implicated in financial irregularities, or has been involved in a criminal case. Possessing large assets without proof of stable financial activity may lead to additional scrutiny, and consideration of a residence permit or citizenship application may be suspended.

How does due diligence work in practice?

Due diligence is a sequential procedure that includes 6 stages:

1. Initial case assessment. Many investors hire specialists to conduct a preliminary analysis of their situation and background. These specialists identify potential risks and ways to mitigate them. This is called Pre-Due D
2. Document preparation. A complete dossier is prepared based on the specialists’ recommendations.
3. Submit the dossier. If it is a CBI program, the application and documents are submitted to a licensed agent. The agent verifies the dossier’s completeness and forwards it to the government agency responsible for reviewing it. For an investment residence permit, the applicant submits the documents directly.
4. Main screening. Government agencies conduct background checks on applicants or engage independent organizations to do so. Specialists analyze the received documents and verify the data.
5. Additional inquiries. If questions arise, the inspecting body may request additional documents regarding the source of funds, business connections, or other matters.
6. Issuing a decision. After receiving all the necessary information, the authorized body will make a decision, either positive or negative. This decision is taken into account when issuing a residence permit or citizenship by investment.

The following key documents are required for application preparation:

• Application;
• Investor’s passport;
• Birth and marriage certificates;
• Residential address information;
• Tax residency certificate;
• Criminal record certificates obtained in countries of birth, citizenship, and places where the investor has lived for 6 to 12 months over the past 10 years;
• Business CV;
• Bank account statements;
• Documents related to the source of capital, such as company registration, sale of assets/real estate, inheritance, or investment income;
• Family members’ documents (passports, marriage certificates, birth certificates, and criminal record certificates).

This list is indicative, as each country sets its own requirements.

What causes investors to be rejected?

During the due diligence process, it is important to confirm the legal origin of the funds. Authorities will reject an application if they suspect that the capital is linked to money laundering, tax evasion, corruption, or other illegal activities. Therefore, tax returns, business history, asset origination, bank statements, purchase and sale agreements, dividend documents, wills, and loan agreements are subject to review at this stage.

Criminal records and ties to criminal cases raise suspicions and pose a threat to the country’s financial system. To verify this information, certificates of no criminal record, investigation materials, and court decisions are analyzed.

An investor’s application may be rejected due to inconsistent information regarding income, positions, employment history, business structure, or marital status. Even minor discrepancies may be viewed as an attempt to conceal information. For auditors, this is a signal to conduct a thorough investigation involving a review of data from questionnaires, registries, open sources, public databases, and archives.

During due diligence, the investor’s immigration history is reviewed. If a visa, residence permit, or citizenship application was previously denied, the examiner will analyze the reason for the denial. Migration authorities will determine if you violated the rules or exceeded the permitted duration of stay in the countries. They will also determine if you have reapplied for a visa, residence permit, or passport.

A refusal based on the results of the due diligence review means that a residence permit or citizenship will not be issued this time. When you submit a new application, your case will undergo a more thorough examination. Examiners will pay attention to the reason for denial and the steps you have taken to rectify the situation.

How to prepare for due diligence

Successful due diligence depends on properly preparing the necessary documents that confirm:

• Legal origin and capital structure (business purchase and sale documents, dividend statements, inheritance and gift certificates, and income statements);
• No criminal ties;
• Payment of taxes and no debts to the state (tax returns);
• Ownership of assets, real estate, and the company;
• A clean reputation in business circles.

If there are circumstances in your background that may raise questions from regulatory authorities, prepare documents in advance to explain the situation. This applies to litigation, bankruptcy, financial difficulties, or company closure. You may also want to prepare written explanations of the causes and consequences of your situation. It is better not to conceal problematic information. Instead, provide details immediately.

Consider preparing a package of documents that may be requested for clarification, such as additional bank statements, information on major transactions, and tax certificates. This could include additional bank statements, information on major transactions, and tax certificates. The faster you respond to additional inquiries, the better. To assess your readiness for due diligence, consider undergoing a preliminary check conducted by immigration specialists.

How to assess your chances in advance

Pre-due diligence is a check conducted before submitting documents. It allows you to identify and address potential issues before submitting your application. During the initial review, specialists will identify legal risks and verify the reliability of your source of income.

If you are planning to obtain a residence permit or citizenship through investment, Mirsatori specialists can conduct a preliminary review of your case. They will provide an objective assessment of your situation and recommendations for document preparation. This approach will enable you to compile your application competently and successfully complete the due diligence process, ultimately obtaining a residence permit or citizenship by investment.